Debtors generally file a bankruptcy petition seeking a fresh start, free from their personal debts.  Debtors have the option to agree to pay certain debts to retain a car or other property through reaffirmation agreements and lease assumption.  Reaffirmation or lease assumption may seem like a good option at the time – when for instance a debtor wants to keep his current car.   However, whether he should enter into such an agreement should be given careful consideration as to the debtor’s ability to make payments going forward.  Once a pre-petition debt is reaffirmed or a lease is assumed, a debtor is bound to make the payments and if the debtor defaults, the debt is not included in the debtor’s fresh start – the coveted discharge.

By example, the debtor in a recent South Florida bankruptcy case,  entered into a assumption agreement for his leased vehicle.  At some point thereafter, the debtor determined that he could not continue to make the lease payments and turned the car over to the lessor.  Not wishing to be personally liable for the remainder of the payments under the lease, the debtor argued that he should not have any personal liability under the lease because he did not reaffirm his obligations under the lease in accordance with subsection 524(c) and thus the personal liability will be discharged when he receives his discharge.  Alternatively, he argued that because he “rescinded assumption” prior to discharge, his personal liability under the lease should be discharged.

The bankruptcy court considered in its decision on the matter, whether the safeguards contained within 11 U.S.C. 524 must be satisfied when a debtor assumes a lease pursuant to subsection 365(p) in order for a debtor’s personal liability under the assumed lease to survive the debtor’s discharge.

The court held that in personam liability under an assumed lease is not dependent on adherence to the reaffirmation provisions of subsection 524(c) and that Toyota may proceed against the car and has the right, subject to the provisions of the lease and applicable non-bankruptcy law, to seek from the debtor any remaining amounts due under the lease.  However, the lessor could not proceed against the debtor until after the debtor received his discharge, or the lessor sought stay relief against the debtor.

Whether to assume a lease or reaffirm a debt in bankruptcy requires careful consideration!  Debtors should ask themselves – can I foresee having any trouble making the payments going forward?  If the answer is maybe – just say no to assumption and reaffirmation!

  Heather L. Ries is an attorney with the Financial Restructuring and Bankruptcy Department of the law firm of Fox Rothschild LLP. Heather focuses her practice in matters related to bankruptcy, creditors’ rights, commercial workout and foreclosure disputes, and commercial litigation. You can contact Heather at 561-804-4419 or